The carbon market trades emissions under cap-and-trade schemes whereby emissions are limited and can then be traded.

Each state under the scheme gets an emissions allocation that it then divides among its worst emission-producing companies.

If it comes in under target, it can sell its excess allowance as carbon credits to other firms. If it comes in over target, it has to pay a penalty and then go to the market to buy credits to make up the difference.

Credits are measured in units of emissions reductions, each one being the equivalent to the reduction of one tonne of carbon dioxide.

Because the Copenhagen accord is not legally binding, those who have signed it are not obliged to reduce the cap on their emissions.

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